Churning is out at Citi

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Citi is kicking the commission habit for its remaining brokerage customers.

The big bank says it is shifting away from charging commissions on customer trades and going towards a more customer friendly, fee-only business model. The change applies to investment advisors working out of Citibank branches.

Earlier this year, Citi entered into a joint venture with Morgan Stanley, which took over the day-to-day operation of its once mighty Smith Barney wealth management business. That venture largely already operates on a fee-only business.

The move away from commissions is a welcome one. And it should avoid situations in which brokers try to drum-up needless trading activity in customer accounts–simply to generated higher revenues.

By contrast, fee-only brokers generally charge a flat fee to customers based on the dollar value of the assets they have invested.

The move to a fee-only business model is consistent with the Obama administration’s call for brokers to be held to a fiduciary duty when investing for their customers. In other words, the Obama administration, as part of its regulatory reform package, wants brokers held to a higher standard for the investment decisions they make for customers.

These days there is a lot to complain about with Citi and I’ve been more than critical of the way Citi CEO Vikram Pandit is managing the bank’s affaird. But this decision to kick the commission habit is good news and Citi should be applauded for making the switch.